My First Time
by David Hollingworth head of communications, London & Country
GettinG on the rental ladder
Most people agree it’s a good time to invest in rental property but where do you start? Here are a few tips to help you and your clients get a step on the rental ladder
Buy-to-let is pretty much agreed to be the bright spot in this market but it can be a maze to navigate if you have little experience. While any investment decision will ultimately come down to the investor themselves, brokers can play a vital role in helping them get to grips with the rental market and the different finance options on offer to first-time landlords.
Deposit Just as with the mainstream owner occupier market,
one of the first things that any potential purchaser will need to consider is their budget. Deposit is crucial in the buy-to-let mortgage market and the usual rule of ‘the bigger the deposit the better’ applies as this will open up a wider choice of lenders and product. Typically lenders will require at least 25% deposit and that will certainly shape what properties may be suitable or attainable for the investor or indeed if it’s a non-starter for them.
Type of property The success of a buy-to-let will stem from the property
itself and how well suited the purchase is. Clearly things have moved on from the days when vast quantities of new build city centre flats were being snapped up by hungry get-rich-quick investors. That did not end happily for many and new build properties are still viewed differently by lenders as a higher risk, requiring bigger deposits in most cases. Houses in multiple occupation may also colour which lender is suitable from a mortgage perspective and landlords need to be on top of the requirements that come with this more complex type of investment.
They should also think about how they will manage
the property. Use of a letting agent will help minimise the burden of managing the property but will clearly come at a cost. Beyond that the adage location, location, location holds true.
Type of tenant New investors should think what their target market
will be and this is very much married to the choice of property. There’s no point in eyeing a type of tenant because that’s who you’d like in the property, when the area or property does not support that tenant profile. Instead it’s important to be sure that there will be a steady supply of the right type of tenant providing demand for your property and that you buy according to that tenant demand. Buy-to-let is a commercial investment and as such “loving” the property is less important than thinking about these factors. The type of tenancy can also have an impact on mortgage selection. For example some lenders are not keen on student tenants.
Realistic rents Rental income is a crucial consideration – the yields
offered by buy-to-let is the driver for purchasing in the first place but will also determine the level of mortgage borrowing available. It’s very important that the buyer is realistic about the level of rental income. Not only would it affect demand for the property but also the mortgage proposition. If the surveyor does not deem the property worthy of the anticipated rental the mortgage amount will be reduced.
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